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CC – Cost centre can be thought of as a ‘bucket’ where we keep the costs relating to a particular segment of the business e.g. Administration Dept CC, Finance Dept CC, HR Dept CC, & so on & so forth.

In any given business you are bound to have the above-mentioned CC. Working as an Accountant your job would be to class & record the Company expenditures in the relevant CC correctly & consistently else the business decision making will be flawed; if costs are booked & reported incorrectly via Company Management Accounts.

Company’s SG&A budgets are drawn up using the historical CC data e.g. Marketing & Advertising expenditures are budgeted using the average spending’s in the past 12 months & rolling forecasts are prepared using the business data e.g. new initiatives, new product & services etc.

The underlying CC is controlled & managed by a CC Manager or Controller e.g. HR manager will be accountable for the HR CC so is the Finance manager for the Finance CC. The underlying expenditures going through within these CC may fall in the following categories: –

If a Company do not have a proper accounting system then it can be quite a cumbersome process to manage CC. The mainstream ERP System such as SAP or Oracle have built in programs to set-up CC. On the contrary if the Company do not have a proper Accounting System it may have to manually allocate the expenditures to the relevant CC.

In Small Companies the Accountants would manually prepare a spreadsheet on monthly basis to allocate the underlying expenditures to the relevant CC.

CC mapping is very important to ensure correct management reporting. Usually the COA – chart of accounts is mapped to the relevant CC e.g. marketing & advertising expense GL codes are mapped to XYZ CC which means if anyone tries to code marketing & advertising expenditures to a different CC instead of XYZ; the system won’t allow it.

As an Accountant you have to ensure that the General ledger has integrity & it agrees to the underlying trial balance. The underlying transactions are coded correctly under relevant CC & GL Codes. Any anomalies should be rectified to ensure integrity of accounts. Rectification entries are usually done during the month-end process when accounts are finalised & period is closed for a particular month.